What does Zoom do?
Zoom Video Communications, the company behind Zoom video conferencing software, is an American company founded in 2011 by Eric Yuan. And although it has been embroiled in many controversies over security issues, Zoom has seen impressive growth.
Yuan's idea was to develop software that would allow people to see each other regardless of distance and without the need to travel. It was this idea that gave rise to Zoom, although it was not really something new because, at the time, several companies were already offering the service.
However, Zoom was more popular than any other, mainly due to its ease of use and the fact that it was free of charge. Thus, in the midst of the technological revolution represented by smartphones, Zoom offered its software free of charge for computers, laptops, tablets and smartphones.
Zoom's business model
As you may already know, Zoom is still free, you can download the program, install it and use it without paying anything. But then the question arises, how does Zoom make money? And the answer is very simple: with subscriptions to a “premium” version.
Zoom has been involved in several controversies regarding the security of the application since the free version does not secure the data. And although the company has publicly apologized for this, the reality is that this is where its business model lies.
Basically, if you use it for free, your video calls are not encrypted, the room is unprotected and the data does not travel directly between participants. The latter is the most controversial because part of the Zoom communications go through Chinese servers where, by law, the government has the right to record the data.
But, if you use the paid version, all problems are magically solved. Your video conferences are private, the data is encrypted and travels from one person to another directly without anyone being able to “read” it. It's that simple how they make money.
And despite this controversy, Zoom has emerged victorious as since its IPO in April 2019 this company has not stopped growing while others disappear. And we are not only referring to the financial market, but also to its growth in the number of users which in the long run means higher revenues and a better valuation of this company.
What types of financial assets can you trade?
Have you heard about Exchange-traded funds? They are passively managed funds, known for merging the benefits of stocks and mutual funds, because they can be traded at any moment in the market, but offer much more diversity and the fees are significantly lower.
Currency trading or Forex consists, as the name says, in the exchange of currencies. It's the conversion of one currency to another to make a profit through the operation.
If you decide to exchange euros and dollars, you buy euros and pay with dollars, with the expectation that the euro will rise compared to the dollar. Therefore, if you purchased each euro at 1.15 USD and you sell them back when their price is 1.20 USD, you'll be earning that difference.
As you may have already inferred, this type of trading requires large resources, since variations tend to be low, or using much leverage, which implies an extra risk. Our advice for those starting in the world of trading is to choose another market to begin with, since Forex is risky and complex.
Most currencies are available on this broker. However, take into consideration that Forex trading functions with CFDs, thus you will not be the owner of the underlying asset.
How do Contracts for Difference work?
It is possible that you have seen the acronym CFD more than once if you entered this broker before. We will come back to it, but you should know first that cryptocurrency trading on this broker is only CFD if you short sell or leverage over x2 (nevertheless, the platform does not even allow this).
We will also refer to terms such as leverage and “going short”, in case you are considering day trading cryptocurrency or more advanced practices.
The good thing about this broker is that it allows you to bet both “in the black” and “in red”. Let's say that you believe that the Zoom will go down, so you obviously think “if it is going to depreciate or go down in price, I'll simply wait until it does”. However, if it really falls, it might mean extra money for you.
You can accomplish that by “going short”. Here's how it works ,roughly:
- Someone lends you, for example, 100 units of Zoom, valued at a total of $ 5,000 (these are completely made up figures)
- You sell the 100 units at $ 5,000
- The Zoom goes from $ 50 to $ 30 (as you calculated, the value decreases)
- You purchase the 100 units again, but at $ 3,000
- You return the 100 units
- There: the $ 2000 difference is yours
It is really simple. Just remember that by trading in Zoom on this broker, you can make a profit if you foretell downs in the price.
Have you heard the term “leverage”? We'll put it simply: trading lets you invest more money than you can have in a given time. That is, if you enter with $ 100 and you choose to leverage x2, you will be really investing $ 200.
About leverage, Take Profit and Stop Loss
Let's pretend that you are confident that Zoom will rise, and you consider “going long. You have $ 1,000, but you actually can invest more and make more money.
There's the possibility of requesting a loan, but it is a process that takes time, and by the moment you receive the money, Zoom might be already at a much higher price, so you wouldn't be able to invest the way you planned.
Leverage is like a credit, and you will only have to click a few times! You will be able to operate with much more than what you have on the platform's wallet. Before trading, you will how much leverage to use as in the image below:
When trading in different markets you can use higher leverage. Why? Because cryptocurrencies regularly represent medium-long term investments, and leverage is used primarily for short-term operations or day trading. But let's explain how this works with the previous example.
You begin with $ 1,000 and decide to use leverage x2, which means you would have $ 2,000 to invest (the extra $ 1,000 to reach $ 2,000 are “borrowed” from the broker).
A week after that, turns out that Zoom valuation rises up and now the value of your investment is 20% higher, which means, you have $ 2,400 in Zoom shares. So, a wise decision is to sell them back now.
You will have to give back the $ 1,000 of leverage and the net profit would be $ 400 (since the other $ 1,000 was your initial investment).
By starting with $ 1000 and getting $ 400, you'll be earning 40% of your investment.
Still wondering where the catch is? The trick is that the risk of losing out also increases. If everything goes according to plan and the price goes up, you will earn more money in less time; however, if the value of the asset decreases, you will also lose more in less time.
For instance: if instead of increasing by 20%, the price falls by 10%, you won't lose $ 10, but twice (the leverage) that figure, that would be $ 20. That is why to operate with leverage it is very important to take into account Take Profit and Stop Loss.
Take Profit is the automatic order to sell once the asset is above the entry price: you buy Zoom shares at $ 100 and you ask your broker to automatically close your operation as soon as the price reaches $ 120. It is very useful to avoid being blinded by greed: a 20% profit is usually pretty good, but once you see it goes up, you might consider you can make higher profits, which is not always the case. As a result, you might lose money if you don't close on time. So, Take Profit helps you to trade more safely.
On the other hand, when using leverage you also have to use Stop Loss, because a small decrease in the price of an asset can have a big impact on your wallet. Consider that your broker will recommend a limit for Stop Loss, but it is better to set it closer to current price than the platform suggests.